REPO RATE & REVERCE RATE RATE??????

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CA Lokesh Pokharna (Querist)
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10 August 2010 WHT V MEAN BY REPO RATE & REVERSE REPO RATE??????? WHO R EFFECTIVE PARTIES IF THESE RATES R CHANGE????AND WHT EFFECT ON ECONOMY OF NATION ??????????AND WHT EFFECT V WILL SEE IN BANKING SHARE PRICES IF THESE RATE WOULD CHANGE????????

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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10 August 2010 Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks. When the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say that in case, RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate

Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI. The RBI uses this tool when it feels there is too much money floating in the banking system. An increase in the reverse repo rate means that the RBI will borrow money from the banks at a higher rate of interest. As a result, banks would prefer to keep their money with the RBI

Thus, we can conclude that Repo Rate signifies the rate at which liquidity is injected in the banking system by RBI, whereas Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks.